Net Present Value (NPV) is the range of cash flows, both inflows and outflows of an enterprise. NPV is the deducted amount from the cash inflows and outflows. It is also termed as Net Present Worth.
A firm's expected investment is 500000. Estimation for the first year cash flow is 200000. Second year cash flow is 300000. Third year cash flow is 200000 and the discount rate is 10%. Find out the NPV of a firm using this example?
Investment = 500000 First year cash flow = 200000 Second year cash flow= 300000 Third year cash flow= 200000 Discount rate = 10%
Net Present Value
NPV = - 500000 + 181818.182 + 247933.88 + 150262.96 NPV = - 500000 + 695081.142 NPV = 80015.02 Therefore, NPV of the firm is $80,015.02.